Calculating Break Even, Degree of Operating Leverage
Longview Company is considering automating its manufacturing facility. Company information before and after the proposed automation follows:
| Before Automation | After Automation |
Sales Revenue | $198,000 | $198,000 |
— Variable Cost | 98,000 | 48,000 |
Contribution Margin | $100,000 | $150,000 |
— Fixed Cost | 15,000 | 58,000 |
Net Income | $ 85,000 | $ 92,000 |
Required:
1.Calculate Longview’s break-even sales dollars before and after automation.
2.Compute Longview’s degree of operating leverage before and after automation.
3.Interpret the meaning of your calculations in requirement 2.
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